THE LOS ANGELES HUMAN :RIGHT TO HOUSING ~OLLE~TIVE

September 29, 2010

Los Angeles City Council Date: q flftiZVZ D Housing, Community and Economic Development Committe<Submitted in ff[€1) committee 200N.SpringStreet 1, . . f()~Af../7- t• !JI~(:< s· LA CA 90012 .-ouncil File No: uw 7 I u---u.w ?-c I

' I Item No.: -;:---L--;;:-;------.,,......... Dear Councilmembers, Bej3+.llyi UYl'\.M. £nw ·fuf!.t'c-The Los Angeles Human Right to Housing Collective is shocked and concerned by the recently released LAHD report with their recommendations for Rent Stabilization Ordinance and other housing policy changes. Almost all of the proposed changes benefit landlords, with only one focused on lowering tenants' extremely high rent burden in the City of LA.

The Economic Study of the Rent Stabilization Ordinance and the Los Angeles Housing Market was commissioned by the City to determine the status of Rent Stabilization Ordinance's (RSO) balancing act, namely that "it is necessary and reasonable to regulate rents so as to safeguard tenants from excessive rent increases, while at the same time providing landlords with just and reasonablereturns from their rental nnits." What your study found is that RSO landlords are doing well financially, while 58% of tenants are rent-burdened (pay over 30% of income for rent) and of those 31% are severely rent­burdened (pay over 50% of income for rent). The nnmbers for severely rent burdened rapidly increase for seniors (40%+), people with disabilities (45%) and those earning less than $35,000 (56%). What this tells us is that the RSO is currently out of balance, favoring landlords to the detriment of tenants. The fact that our economy has all but collapsed does not change this basic concept, it only means that both groups are proportionally worse off.

Attached find our response to the latest LAHD Supplemental Report (September 1, 201 0) (Exhibit 1) as well as our original recommendations (Exhibit 2). In this letter we wanted to detail a few of our most important disagreements with the LAHD recommendations.

1. RENT FLOORJCPIIUTILITY ADJUSTMENT SURCHARGE

There is no justification for a rent floor, plain and simple. It was arbitrary at 3% and would be arbitrary at 2%. Looking at the history of the RSO, from 1979 to 1984 the rent increase was a flat 7% based upon a period of double digit inflation. There was a two year discussion about changing to a system based upon CPI. Interestingly, at that point there was a discussion about whether a percentage of CPI should be used. The thought process was that since operating costs accounted for 40% of gross rent, the remainder went towards net profit and mortgage payments which are not affected by inflation (See Exhibit 3, April 14, 1983 Community Development Department Report, p. 3). It was thought that by using a percentage, it would be closer to the level of operating cost inflation (Id., p. 5), and one option suggested 60% to be a "reasonably close approximation to the actual inflationary impact on landlords." (Id., iv.) According to the

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THE LOS ANGELES HUMAN RIGHT TO HOVSING t::O:LLEt;TIVE

recent RSO study, the average operating costs are 25-35% (Study, p.214). Meaning that even less of landlords' income is affected by inflation. And yet, unlike many other jurisdictions, LA uses I 00% of the CPl. The same report also discusses utilizing a floor and a ceiling in order to "ameliorate the impact of the very low inflation on landlords and very high inflation on tenants." (Id., 6). The same report noted, though, that "there is no rational basis for the percentage nnmber that marks the floor or the ceiling" and that "a floor penalizes poor and retired tenants since they will be snbject to increases beyond any adjustments they get from social security and welfare reform." (Id., vii.). Again it's important to recall what moment in history the concern about fluctuating inflation was written .. With our advantage of 27 years, a look at what actually happened shows that between 1983 and 2009, the CPI only fluctuated between zero and 5.5% (Exhibit 4, Study, p. 254 ). Although the adopted floor was no doubt intended in good faith, history did not bear out its reasoning.

Instead of exploring the elimination of the floor, as directed in council motion #10-0613-Sl, LAHD recommends a 2% floor with no justification. They disingenuously argue that this is some sort of compromise and that only one year (2009) would have been affected if the floor was 3%, when in fact there have been SEVEN years when the CPI was below 2% (1983, 1994-1998, and 2009).

On top of maintaining I 00% of CPI for mmual rent increases AND maintaining an unjustified, arbitrary floor, LAHD also proposes to add a Utility Adjustment Surcharge. While we applaud the efforts to use a system based on real data instead of the current, unfair 2% rent increase, the proposed change does tenants no good when simply added to an already artificially inflated increase. The proposed utility surcharge, which allows landlords to give an increase above the full CPI, should only be implemented if the floor is eliminated.

2. FEE PASS-THROUGHS

LAHD only recommends making it easier for landlords to collect tenant's portion of the RSO fee (which can be split 50/50) without mentioning the SCEP fee (100% passed through to tenants). Again, where is the balance to this proposal? According to the Study, many landlords find the SCEP progrmn very useful and yet they need not pay for any of it. ·We believe it would be far simpler and more fair for tenants and landlords to have one combined fee for RSO and SCEP and split it evenly.

3. PRIMARY RENOVATION

The Primary Renovation Ordinance (PRO, or Tenant Habitability Program) was adopted after major rehabilitation evictions were eliminated. PRO was adopted based on the recommendation of The Advisory Committee for the Study of the Economic Impact of Major Rehabilitation Evictions, a committee made up of lm1dlord representatives, tenant representatives, and academics.

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THE LOS ANGELES HUMAN ::RIGHT TO HOUSING t;OLLEt;TIVE

LAHD recommends decreasing the amortization period from 15 to I 0 years and allowing full recovery of eligible costs within 10 years instead of 15. Both of these recommendations would mean increased monthly costs to tenants. The most harmed would be long term tenants, most of whom are elderly and lower income. The landlords will not make more money this way, they will simply make it faster. It harms tenants without making much of a difference to landlords.

Of even more concern, however, is the recommendation to change the 10% cap based on individual tenants, and allow up to $110 a month increase, in order to allow for "easier planning and financing" of the project. Low income and fixed income tenants cannot afford this "easy" fix, pure and simple. The reason the 10% cap was initially negotiated by the Advisory Committee was that it would be less likely to result in tenant displacement while giving a reasonable return to landlords. This bargain should not be undone.

Another big issue is removing the bar on multiple renovation applications. One of the primary concerns with major rehabilitation evictions was that they were being used to constructively evict tenants. That is why the once-every-five-years policy was agreed on by the Advisory Committee. Removing this would encourage a return .to the harassment and constructive eviction of tenants. Conversely it would also allow for end-runs around the requirement that if a renovation exceeds 30 days, tenants be offered permanent relocation. If a landlord is allowed to do the renovation in stages, a tenant could be forced to endure months or years of renovation without ever being offered the permanent relocation option.

Although the recommendation talk about "enhancing tenant protections", we are concerned with a provision that suggest that a landlord could simply get his tenants to sign and thereby agree to tenant habitability plans (THP), and LAHD would review the THP only ifthere was "disagreement between the parties" and not review all the THPs. Laypersons are not qualified to analyze what measures are necessary to mitigate effects from renovations. Tenants may be easily led to sign something they don't understand or is against their interest. LAHD should increase its scrutiny ofTHPs, not decrease it. We would like assurances that LAHD will review every THP for adequacy, whether the tenants have signed off or not.

4. CAPITAL IMPROVEMENTS

LAHD wants to make the Capital Improvement Program consistent with the Primary Renovation Program, but all its suggestions to do so benefit landlords rather than tenants. We oppose all recommendations that further increase the rent burden on tenants.

The RSO Study found that the RSO is out of balance, tipped in the favor of landlords. Yet many of the recommendations will create an even more imbalanced RSO. In order to balance the effects of the RSO, the City must implement policies that will decrease tenants' rent burden, as the Housing Collective has been advising for months.

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Housing Advocates Response to LAHD Supplemental Report on Amendments to the RSO

Economic Study of the Rent Stabilization Ordinance & the LA Housing Market

STUDY FINDINGS ON RENT BURDEN • 58% of tenants are rent burdened (spend over 30% on housing) • 31% of tenants are severely rent burdened (over 50% on housing)1

o 56% of those earning $35k or less are severely rent burdened2

o 40+% of seniors are severely rent burdened3

o 45% of disabled tenants are severely rent burdened4

RSO reform must focus on reducing the rent burden. RSO landlords are doing well financially-­investments in RSO buildings outperforming non-RSO buildings5

. LAHD's supplemental recommendations will further increase the rent burden on tenants and further tip the balance in favor of landlords. Therefore, Housing Advocates urge the City Council to oppose any recommendation that INCREASES tenants' rent burden.

1. Modify % increase floor to 2% and cap to 9%

2. Eliminate 2% pass­through for gas/electric

3. Establish a Utility Adjustment Surcharge.

1 See. Exec Summary, p. L 2 See study, p.7l. 3 See Study, p. 52 4 See study, p. 53.

• OPPOSE and propose alternative. The floor needs to be ELIMINATED as recommended by the Economic Roundtable. For 6 of the 24 years CPI has been utilized, the CPI has been under 2%.6 Any floor creates a windfall for landlords. No other jurisdiction has a floor and many use ouly a percentage of the CPI 7

• LA uses 1 00% and wants to further enrich landlords by maintaining an unjust floor that artificially increases rents and therefore greatly increases the rent burden on

• SUPPORT. It would be arbitrary and capricious to continue charging this amount.

• OPPOSE. It makes no sense to devise a new formula that reflects real costs to simply put on top of the old formula that gives LL a 2% floor. There is no reason to provide an even

windfall for

5 "On average, investments in RSO apartments have performed superior to the average perfo~mance of investments in apartment buildings in the United States and comparable to non~RSO apartments in the Los Angeles region." LAHD June 25,2009 Transmittal to City Council, page 3. (See «Major Findings" pp. 4"6.) 6 See Study p. 254, years 1994-98,2009. CPI as the basis for the annual increase was adopted in 1985. 7 West Hollywood- 75%; San Francisco- 60%; Berkeley- 65%; Palm Springs- 75%

5. Round the annual RSO increase to a tenth of a

6. Provide LLs greater flexibility in pass through of RSO fees and increase fees.

• SUPPORT.

• OPPOSE and propose alternative. Combine registration and SCEP fees and allow LLs to pass through half the combined fee.

o SimplifY a confusing system o Tenants presently pay 100% ofSCEP fees even though

Landlords benefit from SCEP.8 Fees should be considered a cost of business.

LAHD Reform Recommendations regarding Primary Renovation and Capital Improvements.

• Landlords already recover costs fot Primary Renovation Work under the present law, allowing them to recover more quickly only increases the burden on tenants.

• Landlords already recoup the costs of capital improvements and primary reonvoation at vacancy when they increase rent to market rates for the improved unit

• 1 in 4 units turnover every year9

• Capital improvements and primary renovation increase landlord's property values. Tenants should not have to subsidize these costs when landlords also benefit.

• Advocates have suggested changes to streamline the program by shortening time frames, tying THP to compliance orders, and allowing LAHD more flexibility in reviewing plans.

i. Change amortization from 180 to 120 mos AND

ii. Cost recovery in 120 mos instead of 180

iii. Removal ofthe bar on multiple applications for Primary Renovation rent increases in a five year period

• OPPOSE. This will cost tenants more money and is unnecessary as the LL can recover 1 00% of costs in 180 months.

• OPPOSE. Primary renovation is supposed to be for major renovations. Tenants' lives should not be upturned for construction more than once every 5 years. This would allow landlords to harass tenants out of units, which was a major reason the ordinance was created in the first place.

8 48% of owners said SCEP was either "very helpful" or "a useful service". See Study, p. 163. 9 See study, p.l51.

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iv. Change 10% cap to $110 e OPPOSE. The 10% cap was specifically created to avoid huge, unaffordable rent increases and represented a compromise between landlords and tenants. By disconnecting the increase from the rental amount it puts an undue burden on long term tenants, usually seniors 10 and low income families. $110 increase is not affordable to low income tenants!

v .. Increase $110 annually • OPPOSE for reasons stated above. This would make an by CPI amount. unaffordable modification worse each year.

vi. Extend the surcharge • OPPOSE and propose alternative. Decrease the cap to 5% neriod beyond 10 years. and allow for a surcharge period beyond 10 years.

p.7 Streamline THP process. • OPPOSE having LL submit "approval by affected tenants." D Laypersons are not qualified to analyze what measures are

necessary to mitigate dfects from renovations. Tenants may be easily led to sign something they don't understand or is against their interest. LAHD should increase it's scrutiny of THPs, not decrease it.

CAPITAL IMPROVEMENTS (Sunn Report P. 7 et. sen .. ) Increase recovery, • OPPOSE. All recommendations would increase costs to annual cap, amortization tenants, and therefore increase tenant rent burden. period and recovery • Those most impacted will be long-term tenants - likely period. elderly, and disabled tenants on fixed incomes.

• If time is extended from 6 to I 0 years then it is essential that the monthly cap be lowered to $30, otherwise costs to tenants increase dramatically.

• Presently, landlords make improvements when the unit is vacated., Considering the high turnover rate, landlords will recover the costs when renting unit after it becomes vacant. . II

10 The only info available from Economic Roundtable concerns length of tenancy and age. 53% ofthose aged 65+ have tenancies 11 + yrs. (excel cha1t of renter survey responses obtained from Economic Roundtable).

11 LAHD report indicates much renovation done at vacancy. Economic Roundtable study indicates that 54% of tenancies are under 5 years (study, p.152).

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Housing Advocates RSO Reform Recommendations Economic Study of the Rent Stabilization Ordinance & the LA Housing Market

STUDY FINDINGS ON RENT BURDEN • 58% of tenants are rent burdened (spend over 30% on housing) • 31% of tenants are severely rent burdened (over 50% on housing)1

o 56% of those earning $35k or less are severely rent burdened2

o 40+% of seniors are severely rent burdened3

o 45% of disabled tenants are severely rent burdened4

RSO reform must focus on reducing the rent burden. RSO landlords are doing well financially-­investments in RSO buildings out performing non-RSO buildings5

. LAHD's current recommendations do not significantly address rent burdens. Therefore, Housing Advocates urge the City Council to oppose any recommendation that INCREASES tenants' rent burden and to implement the following reforms to REDUCE the rent burden on tenants:

1. >-Eliminate 3% minimum rent increase

2. >-Eliminate 2% pass-through for gas/electric (LAHD also recommends)

3. Eliminate pass-through of fees (registration, SCEP) to tenants, or at least lessen the burden by splitting SCEP fees.

4. >-Require landlords to register rents with LAHD;

5. Limit rent increases to 75% of CPI

1 See. Exec Summary, p. !. 2 See study, p. 71. 3 See Study. p. 52 4 See study, p. 53.

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Overinflates rent when CPI is below 3%6

Do not reflect actual costs and are a windfall for landlords 7

Included in CPI Simplify a confusing system Tenants presently pay 100% of SCEP fees even though Landlords benefit from SCEP.8 Fees should be considered a cost of business.

• 27% of rent increases are illegal • 3 3% of rent increases for tenants

earning $25k or under are illegal9

• Several other jurisdictions use a percentage of CPI • West Hollywood- 75% • San Francisco- 60%

• Berkeley- 65%

o Palm Springs- 75%

• RSO increases exceed national market rents10

5 "On average, investments in RSO apartments have performed superior to the average performance of investments in apartment buildings in the United States and comparable to non-RSO apartmen.rs in the Los Angeles region." LAHD June 25, 2009 Transmittal to City Council, page 3. (See "Major Findings" pp. 4-6.) ll See study, p. 254, 10 yrs below 3% btn 1993-2007. 7 "There is no connection betw the annual master-metered increase authorized by the RSO and actual cost increa.ses." See study, p. 259. 8 48% of owners said SCEP was either "very helpful" or "a useful service". See Study, p. 163. 9 See Study, p. 127. 10 In 23 of the past 29 years, the RSO annual allowable rent increase exceeded or roughly equaled the percentage increase in national market rents. Over the past eight years, RSO annual rent increases exceeded market rent increase in 15 of23 metropolitan areas in the U.S. LAHD Transmittal to City Council, page 6.

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LAHD Reform Recommendations

A.

B.

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Landlord and tenant outreach plan to tenants and landlords;

34% ofRSO tenants are misinformed or unaware ofRSO status 48% ofRSO tenants with incomes under $25k know there are limited reasons for evictions 59% ofRSO limited english speakers knew that rent increases are limited (pp. 100-102)

nxuuu the current scope of coverage of the RSO and the Consumer Price Index (CPI) as the basis for setting the annual allowable rent increase under the RSO

Restructure RSO capital improvement, primary renovation and tenant habitability plan provisions.

"See study, p. 254, table 5-3. 12 See study, p.l51.

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Support with two additions • In all written communication to tenants

in RSO properties, landlords must include one paragraph that states that the property is governed by RSO, that it is subject to limited rent increases, that there are limited grounds for eviction. Should also include LAHD phone and website information where tenants can get more information.

• LAHD include a similar paragraph of basic RSO information in all LAHD

to landlords and tenants.

1. Support retaining use of CPI but rent increases should be limited to 75% of CPI, similar to other cities. • West Hollywood- 75% • San Francisco- 60% • 65%

2. Stop rounding percentages. For example, use 3.6% or 3.4% rather than 4% or3%. • Rounded 21 down twice"

3. Oppose retaining current scope of coverage • As each year passes, older RSO units are

demolished or converted and are replaced with new non-RSO units. To stop the ever-shrinking stock of affordable, RSO housing, LAHD and the City Council should pursue strategies, including seeking amendments to state legislation, that expand the scope of the RSO coverage. One approach is to amend state law to allow RSO to apply to buildings that are at least twenty years old.

Considerations • Landlords already recoup the costs of

capital improvements at vacancy when they increase rent to market rates for the improved unit

• 1 in 4 units turnover every yearJ2

• Capita] improvements increase landlord's property values. Tenants should not have to subsidize when landlords also benefit.

D. Replace the current pass-through provision for the gas and electricity utility allowance

E. Evaluate the delivery of services and adequacy of the number of hours under the contract scope of work for the tenant relocation assistance contract

F. Continue housing inspector training

G. Increase the annual rental unit registration fee to implement LARD recommendations

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• Advocates have suggested changes to streamline the program by shortening time frames, tying THP to compliance orders, and allowing LAHD more

Support immediate elimination • Because they do not reflect actual costs

and are a windfall for landlords, immediately eliminate all current utility pass-throughs

Support changes to improve services, not a costly evaluation o Improve services to "qualified tenants."

The average time that a relocation specialist works on a case is 4 hours. This is insufficient to truly meet tenant needs, particularly for qualified tenants.

• Raise relocation fee to pay for more

Support with modification to emphasize training on: • Quality Control Train!ng- Inspectors

should ensure work isn't substandard. Could reduce costs in long run by reducing number of future inspections.

• Cross-training in RSO issues- Inspectors should be able to disseminate basic RSO

Oppose and propose alternative • Eliminate the pass-tbrough to tenants.

The fees are a cost of doing business and landlords should consider such costs when setting the rents. 80% ofLL's don't pass tbrough fees anyway. Alternatively, SCEP fees should at least

." :'. QOL;;·~.z..AZ. S. FO~O ·~ O£N'MA.i.. MA.N.t.a:U

C::OMMWIIT't' DEVELOPMENT ··DEPARTM~T

CAL.l!"ORNIA RI!!HT A.D.!UsTMENT

· COMMI5510N 21!5' W. 6TH sntUT 1..05 ANGa.Q 90014

TOM BRAOL.EY MAYOR

April 14, 1983

.The HoJ::~orable Members of the Governmental Operations .Committee City of Los Angeles

. RE-EXAMIN]I.TION OF ANNUAL AUTOMl\.TIC INCREl\.S:E

<213) 485-4727

In response to your committee's request, the Commission, in the lirni.te<i time avail.able, has investigated this subject by way of one public hearing 1 two regular meetings, four special meetings,

. and several staff· reports.: · ·

.At the pub lie hearing, the Community Development Department pre­sented a report ·discussing the history of the present 7% annual increase; its eff'ectiveness. in covering landlord costs to date, t,he problems in using the consumer Piice Index (CJ?I) figures to determine changes in landlord.operating costs, and the :i:'ole.the annual automatic increase plays in adjusting historically low

.. rents.

In addition, approximately 40 people presented written or oral testimony on the issue. Several. tenant·_ groups expr.essed their belief that no rent increase should be all.owed,. or that the annual increase should bE: lower than that suggested in the motion. On the other hand, ·landlord groups ind·icated that their costs a.re growing, and ·one suggested that·a 22%'rent increase is necessary •

. The commission, aft.er examining a number of alternatives, could ·not find an alternative it wishes to .recommend to Counc.il in · pla.::e ·of ·the present 7% annual increiase. However, the Commission believes the increase shOuld. be tied to changes in inflation on the.basis.of factua;t data·on.the Los Angeles City housing market

·,that does not exist at this time. Therefore, a majority of the commission recommends a.sttidy be authorized to obtain.the infor­mation. needed to establish an annual increase related to the im~ pact of inflation on landlol;'d operating costs and net return as described in alternative "D," .

I. INTRODUCTION: !?URPOSE OF AN ANNUAL ADJUSTMENT

In fo'rrnulating the initial Rent s·tabiliz'ation Ordinance, Council chose to include a!') annual adjustment {AA) instead of the cumbersome administrative procedure of individual adjustments. While the latter procedure may be workable in

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sma;l.l jurisdictiOJt§i (such as Carson, where ;i,ncidentally, . this issue among 1 / hers is presently befor1 .'the California supreme Court), ci~arly such a method was~ <ceived as un-. workable in Los Angeles. It ist however, important to understand that there are two general approaches to ·the subject,· and our research indicates that the vast majority of rent control jurisdictions utilize an automatic adjust-ment as opposed to an individual adjustment mechanism.

It appears that the purpose of an AA is to "coverK as many landlords as possible with a stipulated percentage increase to allow the bulk of them to pass all or a portion of. the

.additional costs of operations. incurred as a result of in­flation and an adjustment to net profit onto .the tenants, and, thus, m('l.intain their same level of net operating income from year to year .•.

·For some owners, however, the percentage may be considered too high, resulting in rent. increases in excess of the land­lora·• s inflationary cost increases~ v,rhile for others it may be considered too low, ·resulting in an erosion of net opera­ting income~ For the latter group (such .as those landlords v.rith extraordinarily high operating expenses) relief may be

·available through the individual adjustment mechanisms o:E capital.improvement1 rehabilitation work; or just and rea­sonable increases.

By definition, then, anAA·should be desiined, as accurately as possil:lle, to apply to the vast majority of owners, recog ..

. nizing that it c.ould not possibly be designed to respond evenly to every landlord in the Ci.ty. As such, any formula . woul.d have to involve approximations and est:imates. As will be di~>cussed, precise data for the Los Angeles.City market currentlY is unavailable a,nd,: thus, our "data base" includes property in· Los Angeles County and parts or the entiretyof Orange County. Therefo;re, while estimates are an inhere.nt part of devising any. sort of M, those estimates become more attenuated, and perhaps l~s reliable, in the absence of information on the experience of Los Angeles City landlords. This, however, is a question of degree, and Council may want. to balance the benefits of more precise data against the co.s.t of gathering it. The relationship between setting an M and a study to gather the necessary data will. be discussed below.

The commission interprets your Committee's request to in­vestigate this subject as an indication of intent, or at · least desire, to move toward a method based on experiential information concerning inflation and-operating costs in set­ting an AA j;igure. A majority of the Commission stro-llgly · believes that this approach is preferable because the·focus of the decision is shifted from the poli ticai arena to the

. accuracy of the economic formula (,and the data fed into it}, designed to achieve certain goals, namely, "to safeguard tenants from excessive ren.t increases" and "to lielp protect owners' profit margins from erosion by inflation."

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. . ··.II. H:tSTORICAL BAC1<Gl'="-iND AND THE PRESENT SITU7·7:ION

our research ind~cates that, nistorically·, ~'esidential rents have. not increased at the same rate as the All-Items Cl?I •. Nationally from 1967 through 1982., ·residential rent increased 124% while All-Items inpreased 189%. In the Los Angeles area residential rents in this. same period inc'reased 157% while All-Items increased by 187%. While the reasons for this differential are many and complex, they are not at issue in this discussion •

. The Rand technical paper which made up part of the ·city's Environmental Impact Report on the present· Rent Stabilization Ordinance confirms this fact of a lower increase in rent than in All-Items. l?rior to the advent o'f controls in the City, the ratio.of residential rent to All-Items was 93%. From May, 1978 through May, 1981, that ratio had dropped to 87%. In this same period·, nationally, the ratio of. rent to All-Items dropped from 87% to 69%. .In the last decade there have been.only two years during which residential rent increased at a higher rate than All-Items in the Los Angeles area. Those two years were 1977 and 1978, immediately prior to t!).e advent of rent regUlation. This. unusual ·phenomen.on is an indication of the pressures which led to rent regulation~

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According to data complied by the Institute of Reai Estate Management (IREM), operating expenses in the Los Angeles County account for approximately 40% of gross.rent. The bal­ance of the rental income goes toward net profit and mortgage payments (principle and interest) which have h±storical.ly not been affected by inflat.ion. · .

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Recently, there has·been a lessening of inflationary pressure on consumers. The. national All-I.tems CPI between December, 1981 and December, 1982 was only 3.9, far lower than the double-.digit numbers that marked the per.iod from 1979 through 1981. In the Los Angeles area the current inflation rate

. has flattened out at least temporarily. However, as the Department haS reported in its separate submission to

·the Committee, there are too many variations possible in Cl?I data to pin-point any one index or combination of indexes

.·that wou.ld permit a simple selection of a number that could serve as the AA.

III. CURRENTLY AVAILABLE DATA '

~taff .has presented to the Commission the available data on the· Los· Angeles area. The Consumer Price Index for the Los Angeles area includes the SMSA which covers all ot Los Angeles

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and Orange. Countj_.':'f'!. A large number of mur,3.,pipali ties in this area dci not' <re rent control. Furth;·.· ', the detailed

· tiata. that might serve a;; ari immediate inde"'- for landlord , costs is.not available. The IREM data also covers the Los Angeles SMSA excep·t that Orange County is listed separately.

·.Landlord costs in. the IREM data: f,or Los .. Angeles include an · unknown percentage of units not "located in the City. The detailed data from Santa Monica.is based on that city!s· landlord declarations from 1979 and while valid for their housing stock, the Santa Moni.ca data cannot be projected for Los Angeles.

Other municipalities with rent regulation across the country have either a fixed percentage AA like Los Angeles, o·r. have some CPI index or percentage of a CPI index or·· indexes.

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I Only Santa Monica and New York· City have .the data base for ~;~djustments based on actual landlord expenses., although Brookline, Massachusetts will begin to generate data from its own housing market. · ·

After reviewing the above-mentioned sources of data, the Commission has concluded that there is no present index or

I component· of some index or other statistical .sources that can demonstia.te actual landlord operating. costs .. in Los Angeles and the impact that various rates of inflation have on these costs.

ALTERNATIVE APPROACHES

The inve~tigation·and discussions of thii!! commission have primarily focused on four possible approaches tO?etting an AA·. These are: a} retaining tbe 7%, b)· tying the AA to a selected CPI index, c) tying the AA to some percentage .of an All-Item CPI index, d) es.tablishing a Landlord's Cost Index approach, using either available or newly gathered data.· For all except alternative "A", a floor or ceiling percentage could be set below. or above which the actual AA could not gci; Below are brief descriptions of each of these approaches.

·some of the advantages and disadvantages of eacb are set forth in more detail in·appendix A.

·A. Retaining The Present 7%

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Although the present 7% was related to the CPI when establishec in 1979, tbere has been no direct correlation in periods .of double-digit inflation nor currently when inflation has lessened. The retention of a 7% AA, in a period of low or no inflation, actually operates to allow rents in .those units which may be considered below market to gradually reach market ·levels, thus· phasing out the rent stabilization program, .unless the CPI rises again.

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. B. Tying The AA,<;:o.-, A Selec.ted CPI Index

One of the regularly published CPI Indt.. .. es that. appears to come closest to overall landlord operating expenses could be selected and the AA could be set at the pub­lished inflation 'increase percentage. There would be no increase permitted if there was no inflation or if there was deflation.

One attractive feature of this option is that very littl.e cost would have to be incurred in setting an AA, in that the data is supplied by the Bureau of Labor Statistics. The major defects are: a) that there is no index di­rectly relating City landlord costs to any CI'I index;

·b) full CPI on rent overstates the impact of inflation on landlord operating costs; c) the poor and the elderly on fixed incomes might have to reduce other necessary purchases to pay higher rent.

C •. Tying The AA To Some Percentage Of The All""Item CPI

IREM data indicates that approximately 40% of a landlord's gross income is spent on costs subject to inflation. The AA could be determined by selecting some percentage (e.g. of area All-Items CPI, or sdme component · thereof •. Using a·percentage rather than a full CPI could result in an AA that is closer to the level of c:>perating cost in.J:lation experienced by landl.ords. Otherwise, how­ever, this method generally would have the same advantages and disadvantages as alternative ."B" ..

D. Establishing A Landlord cost Index Approach, Using Either Available Or Newly Gathered Data

·A majority of the Commi:ssion would like to see a standard­ized formula developed to measure the impact.of inflation on landlord operating costs and profits and from the im~ pact of inflati.on on these factors generate an AA that will insure that the net operating income of the City's landlords is no·t·eroded by inflation.

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. Basically, ·the system .. envisioned would involve a tested formula that accurately reflects Los Angeles City landlord expenditures converted to a weighted base against which fluctuations in prices of representative lapdlord expen­ditures are measured. The multiplication c:>f a weighted base by price increases inturn would establish the AA needed tc;o maintain landl.ord profitability.

The f.ormula would, probably,provide f.or both operating expenses and s.ome allowance f.or inflation on profits. Additional profitability will be provided by vacancy decontrol but this will not; be factored into the formula. Thus on the wh.ole, given vacancy decontrol in the Ordin­ance, landlords will receive increases sufficient to offset inflation.

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.·. There are two .. ways of establishing this _type of matne-ina tical formt:'. ·"· ·

i. · Av<iiiable- Data Approach

This approach would use the IREM data as ~e base for measuring price changes. The local CPI, or some national CPI index, could be used to measure infla­tionary changes. The probable future changes in local utility costs could be surveyed and projected. The resulting AA could be obtained quickly and in­expensively, although there would-continue to be doubts as to the validity of the AA since there can only be an estimated correlation between the base data and Los Angeles City landlord expenses.

ii. Obtaining Exact Los Angeles City Landlord Data

This approach would require a study to establish a .data base .founded on a representative sampling of Los Angeles City landlord income and expenses. Annually the cost of local ite.ms that make up land,-1-ord expenses would be measured and a.· special index

·developed for each category i.n the data base. While this ·method would require a preliminary study to establish the database and an annual specialized set of indexes and. would. be relatively costly, it has the advantage that it would more accurately reflect the actual impact of. inf.latiori on the City's landlords .and the· resulting AA would be a · d>:.fensible figure. to use. There might be criticisms of the survey techniques and the-weighted averages but the area of dispute would be shifted froni the policy arena to the correctness-of the methodology and the data. gathering techniques.

V. FLOOR-CEILING ALTERNATIVE

In addition to the above five methods, the Commission also considered a floor/ceil.ing alternative that could be util.ized ·

.. in conju-nction with any of the previously mentioned options except the one· which retains the 7% annua.l increase·. With this alternative, the AA would not be permitted to drop below a minimum percentage nor rise beyond a maximum percentage, regardless of the figure that would normally result from whatever formula approach was in use.

This alternative would ameliorate the impact of very low inflation on landlords and very high inflation on tenants. Such an alternative. approach appears consistent with o,ne of the purposes of .the Ordinance, namely, to stabilize rents

··and prevent excessive rent increases.

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·VI. OTHER ALTERNATIVT?-.

.The Commission briefly examined other alteniatives origin­ally discussed by Council in 1978.and 1979: an individual­ized AA for each· landlord based on income/expense and invest­ment data, an.open-ended annual increase lilhited to one per year, and an AA based on tenant ability to pay. Since Council chose the base rent method and no additional data were presented in support of any of these alternatives, the Commission did not consider them at length.

_CONCLUSIONS AND RECOMMENDATIONS

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We have, however, discussed the validity ·and appropriateness of the information available to us and note that there is no did;:a that· supports a 7% or other specific percentage increase for 1983. Primarily because of the absence of data on the impact of inflation on costs incurred by Los Angeles City landlords, we are unable to recommend any particular AA for 1983. .

·The need for data specific to· the Los Angeles experience is apparent~ Of all the options and alternatives· available, alternative "D" ];lased on actual Los Angeles landlord experi­ence, in the. view of. the majority of· the Commission, is con­sider·ed bes.t and is .recommended for adoption by Council in time for the 1984 AA.

An even larg~r majority of the Commission believes t)'l.at.what..: ever alternative is selected to the present fixed 7% that a

·floor/ceiling approach be adopted to prevent overly wide fluctuations during periods of extremely low or extremely high inflation.

Sincerely,.

Rent Commission

Attachment

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This' method retains 7% as the annual . automatic .L • .;rease as the annual amount that will be permitted irrespective of the ·rate of inflation or deflation.

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· ADVANTAGES

1. It has worked well to date with easy landlord/tenant identifi­cation of the arinual rent increases allowed.

2. 7%, because it is based on reht and not landlord.expenses, has provided a. cushion for landldrds during a period of double­digit inflation.

3. 7% protects tenants against unreasonable and multiple increases during a calendar year.

4. In periods of no-inflation or deflation, the 7% acts as a method for correcting historically low· rents and reduces the potential for· reduction in housing services, undermaintenance arid the

premature demolition of housing units.

5. A constant percentage simplifies Department administration,

6.. The Rent Adjustment Commission's guidelines. do not have to bE;! adjusted to correct for a. changing annual increase amount.

7 .• ·· Landlords. can count with certainty on income levels and will correspondingly.invest money to maintain and improve their property'.

8. Risk capital will feel safer investing in the Los Angeles market since there is no Charter protec-tion against Cou,ncil at some future date extending control to newly constructed rental housing.

DISADVANTAGES

:J.. While there may have been some stat;Lstical connection between 7% · in 1978, there is no rational basis for selecting·. this. number. over any other number for a general annual percentage increase"

2. In a period of stagna.tion or deflation, the poor arid elderly will have to carry an added burden of paying landlords increased rents when their own income is restricted or reduced.

3~ That while 7% may have covered the inflationary impact.on land-lord expe,nses in the period 1979 to 1983, there is no assurance that ·in the future· the CPI increasescould ndt reach 20% or more per year. At that time, 7% may be too low a figure and Council would have to .take special action· to make adjustm.ents under strong 11

political pressure instead of on the basis of a. tested statistical · method. · · ·

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4 .• ' . While 7% may have;<"'<>vered the costs of high}~\ efficient manage­ment companies, i'~- s insufficient to take · ,._. ;re of. the business and personal expenses of moll! and pop operate. .. s who need the ·

.added income t 0 maintain their standard of living during highly inflationary periods.

ALTERNATIVE B: TIE- ANNUAL INCREASE TO SELECTED CPI INDEX

This method ties the annual automatic increase to one of the pub­lished Bureau of Labor Statistics Consumer l?rice Indexes: National All-Items, L.A. Area All Items. or one of the various indices more closely related to landlord costs. (e.g., "other goods and s_ervices")

ADVANTAGES

1. The Bureau of Labor Statistics gathers. and publishes data monthly that are available to .landlord and tenants. The basis for any change would be based on a federal agency and not subject to suspicion that the numbers favor either landlords or tenants.

2 •. ·While in the past rental property owners had fixed rate mort­gages that: did not va:r:y with inflati-on, most current financing. requires rental· property buyers to borrow money under. some form of variable rate financing. The full CPI will· enable _new in­vestors to risk J?Urchasing rental property since they are fully hedged agai~st inflation. . . ·

3. While there may be no one index that tracks landlord costs 1 one. or the existing _indexes that comes dlosest to tracking landlord costs in New York, Brookline, and Santa Monica could be used with satisfacto:r:y approximation to.the actual changes in land­lord costs.

·. 4. There _is no cost to either landlords or tenants by using one of .. ,. the current CPI indexes.

5. The purpose of Rent Stabilization was to soften the impact of multiple ·and speculative rent inCreases and not to fix rents at _some predetermined level. Even if the CPI provides landlords W:i_th an annual increase higher than the impact. of inf.lation on

. their costs,· it still provides a limit on gougers without harming those who under_ rent control had historically low rents.

DISADVANTAGES

1~ Only a portion of the typical owner's costs are subject to inflation. While this portion varies' widely from landlord to landlord, depending primarily on the age and-method of finan­cing thl' building, data froin the Institute_ of Real Estate Management (IREMJ indicates that the percentage of a landlord's gross rent dollar subject to inflation is approximately 40% •.

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·To allow. a full q-> increase on 100% of t~e·:·!ross rents, there-. · fore, would effeC't:- /ely result in a net inc' a.se w!'!ll in excess of the CPI. Apparently for this reason, fe~, juris- , dictions with rent regulation have adopted this approach.

·z. Statistical data indieates'that, historically, it has not be!!n traditional lan.dlord: practice to raise rents at the same level

· as inflation.

3. There is no Bureau of. Labor Statistics index which specifically measures the impact o~ inflation on Los Angeles city landlord's

. cost.. Therefore, any available index (e.g. All-Items, All-Items Less shelter, etc.) mi·qJ'lt over or understate the ttue iinpact of inflation on landlord's. operating expenses. ' '

4 •. ·Where the spendable income of the poor and disadvantaged are tied to some CJ?I index, and when this percentage figure is low, as at present, those who can leas~ afford increases are forced to pay their dwindling resources· to landlords at thE)l expense of other vital needs.

5-. Tying to the CJ?I causes an. appearance of fairness that may cause the continuation of rent control long after it has served its usefulness., A full Cl?I increase will keep Rent Control in

.effect :Longer than is necessary to meet any local housing crisis.

6.. The .Federal <;overnment may change the basis of the CJ?I for t.ech- . n:i.cal reasons which have the effect of reducing measured infla­tion, making it appear lower thai). it is. Therefore, the. full CPI may· not reflect the true inflation picture.. ·

7. l?ol:i.tically, a full. CPI may not be acceptable to tenants when there :i.s double-d~git inflation, nor to landlords when the :j.nfla.tion rate is low, because it does not pei:mit an adequate adjustment for historically low rents. .

ALTERNATIVE C: USING A PERCENTAGE OF ALL ITEMS CJ?I .

ThiS: method establishes a percentage of one of the Consumer Price Indexes, and permits an .AA at that rate. (e.g. rate of CPI in.crease times X%) ·•

ADVANTAGES

1. This alternative compensates for the fact· that the full All­Items CJ?I overstates the inflationary impact of actual land­lords costs •

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2•· ·An arbitrary, but~;tr.E;)nera~ly accurate percer-:-:;;:ge, perhaps 60%, of local All-Iteri,' :PI· could serve as a te<:' -·1nably close approxi­mation to the actual inflationary impact or" ~andlords.

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.· 3. ·There would be no cost to using this method since the data are already publicized•monthly by. the Bureau of Labor Statistics.

4. Should it become desirable to eliminate the Rent Stabilization Program, the percentage of all CPI adjustments could be raised to 100% or more.

. DISADV11NTAGES

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There is no available data to establish the exact percentage that reflects the operating expenses of Los Angeles landlords.

The only available data, drawn from IREM,. and the BLS includes landlords and communities not subject to rent controls.

When there are fairly wide fluctuations in inflation or defla­tion, there wil.l be strong political pressure to back away from the tie to the CP! •. For instance, with a 60% syst~ and the 4% national All-Items figure between December, 198i and December, 1982, rent increases would be limited to 2.4%. In

·periods during the past three years, the double digit infla­tion would have permitted increases of at least 10%.

The system does not-work in deflation since there is no way to require landlords to lower rents when infl:ation becomes deflation.

ALTERNATIVE D: LAl>!DLORD COST INDEX

This method establishes·a formula. which· sets a maximum AA based on Los Angeles city operating expenses. This could be accomplished in one of two ways: ·1) use of available data base, ·or ·2) develop­ment of a data base by an independent survey of Los Angeles city· landlords.

use of Available Data

ADVANTAGE.S

1. This method limits the impact of inflation to those costs which can be ·demonstrated from the statistical data derived from IREM and the BLS.

The full CPI can be used, not some arbitrary percentage, and applied to typical landlord expenses. '

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Projected utility .. increase based on anticipated rq.tes for the forthcoming year .. c' n be inserted into the ": rmula to make the rent increases at .Least partially prospect. = instead of totally retrospective. ·

Some allowance can be made for the impact of in;Elation on profit­as well as operating expenses.

! -------. I DISADVAUTAGES

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There is no data base that reflects the Lo's Angeles landlords.

income arid expenses of

/ '· Th.e IREI\1 data is based on large management company e::K:perience and overstates dollar per square foot income in relation to most landlords' experience.

The IREI\1 data is only available ll:z years after_the end of a calendar year .•

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4. The. IREI\1 report contains data· from landlords so the percentage of income and expenses may the experience of Ci ~y .landlords . ·

5. · IREM is not a statistically selected sample.

6. IREI\1 is self reported.

outside the City -! or may not reflectj

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ADVANTAGES

1. This _method would be based on the actual landlord experience in the City. and would be adjusted by expenses that accurate~y re­flect increases in the City.

2. By ba$ing the annual rent increase on an independent data gather­·ing source, both landlords and tenants would feel that their future is. less threatened by .changes in· the City's political Clima.te.

3 .~ · While substantial, the cost of building and maintaining an .·.accurate data base and mechanism for establishing the anilUal

rent increase could be absorbed within the budget from the current rent registration fee.

4 •. There ProbablY would be no increase in the. registration fee to cover i:he cost:. . . ·

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5. The projection of anticipated utility increases could be bull t . I · into the formula, ther:by rnakirig the syste;.n less retrospective.· 1.-

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•, D;r SAD VANTAGES

L Th,e use of any fol:mula arid any set of loca. :;pr data masks the fact that rent contra~ is basically a political measure. The use of any formula provides economic and statistical respect­ability to what is essentially a politic~! decision.

2. There is no way to get a single standard, or market basket of landlord costs, that will adequately reflect owners of build­ings of differing age, levels of serv'ice, financing cost, and investment. Therefore,· the standard will under-represent some and overcompensate others.

3. The landlords will have to be surveyed to get their income/ expense data. ·This could create a tendency to exaggerate ,,.,J:ien giving the data to whomever sets up the basic index.

4. Over time, landlords change their expenditure "mix" as the prices of various inputs to maintenance rise at different rates. Therefore, the basis for the annual increase will be outdated after. the first year.

5. ·The cost, which will have to be from $500,000·to $800,000, could better be used in other ways; since the use of an arbi­

. · tr«ry «nnual percentage or some percentage of the· CPI would be as defensible as the amount gleaned froma study.

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FOI(·::'-~ L ALTERNATIVES EXCEPT ,.­. '

ESTABLISH A FLOOR AND CEILING FOR Al,... CHANGE

This alternative could be s_et to work with options B-D and would establish a percentage floor and ceiling for any annual change irrespective of the amount predicated on CPI, some percentage of CPI, the Landlord Cost Index formula, or the change relying on a Los Angeles market base.

ADVANTAGES -, I J l I

1. While permitting economic forces to·adjus:t the annual increase within reason, it permits limitations against too high or too low of an increase when inflation increased to double-digit figures or flattened out and ne-ared deflation.

2 •. This would forestall political pressures to change the Ordinance from time to time to meet changing CPI conditions.

·3 • . Landlords, tenants, and build.ers would have long-ranged assurance as to what the minimum and maximum rent increases can be, thus stabilizing speculation.

4, Other murticipaliti'es have laws with.· ceilings.

DISADVANTAGES

1. By· establi·s.hing a flopr. and ceiling, the lawmakers are admitting the inadeqUacy of any index tied to CPI. and keeping a political j "out" when the facts of inflation become unpleasant.

The-re is no rational basis for. the percentage number that marks the fl.oor or the ceiling.

3. A ceiling on an increase could prove confiscatpry and cause large number of landlords to make J -& R applications, a possible adminis­trative cost that cannot be estimated.

4. A floor penalizes poor and retired tenants since they will be ;;ubject to· incre.ases. beyond: any adjustments they get from social security and welfare income. .

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Date: q /t1(! 0

h . ... .. •••• :§Ill i'li"H' HC;t?D • .@"Mm:: ApartmentOwnersAssociation GcunciiFIIeNo: 10~00/?) fO··Dftf:!rS!

of California, Inc. N J "PROPOSED 7% INCREASE:~;;:~~JOW-ifl&~

EQUITABLE THAN A FREEZE!!" Dear Council Member:

You know it's true- you should be voting to allow a 7% increase! Especially in this time of economic uncertainty, it is vital that we protect housing providers, many of whom have already lost their homes, their jobs and now unemployment benefits. We cannot protect those who have already lost their life savings because they were unable to make their mortgage payment on their apartment units or had their buildings confiscated by the City bureaucrats! But YOU can do something to stop this bad situation from getting worse.

NEED TO BALANCE BUDGET!

Many owners were counting on the income from their jobs to help make their mortgage payments. That's pretty hard to do as they try to find a new job! Many other large and small owners live side by side with their tenants or are seniors who depend on their units to support themselves. The more housing they provide, the bigger the mortgage payment and other expenses they have to pay every month.

That's hard to do when vacancies are up and our income is down. We are already lowering rents that were once at fair market prices. A 7% increase, if granted, would only be given to renters who are paying much, much less than a fair price. If we try to charge more to other tenants, we'll lose our customers. But we have too many vacancies so we can't even consider it!!

The question is- should housing providers be expected to receive less rent than the fair market value? That market value has already gone down as a result of the recession. We are forced to balance our budget or go out of business. I'm certain the City Council members are well aware of how hard it is to balance a budget!

, TENANT WELFARE

Rent control is nothing other than "tenant welfare". Each individual owner already provides tenant welfare on average for 12 tenants by the way of below market rents. Please don't put the squeeze on for more unjust benefits. Is there no other source of funds to help these tenants- most of who would not qualify for welfare anyway?

As you know, our expenses are already going up- part of these increases Wi'\S because it was necessary for the City Council to get a little more balance in the City budget Now, how about helping housing providers do the same? Our cost for vacancies, repairs,

Corporate Office: 6445 Sepulveda Blvd. #300, Van Nuys, CA91411, 818-988-9200,323-872-3348, Fax: 818-988-5921 1128 Lincoln Avenue, Alameda, CA 94501, 510-769-752.1, Fax: 510-769-7485

5455 Wilshire Blvd., Suite 1009, Los Angeles, CA 90036,323-937-8811, Fax: 323-937-8897 4611-/:. E. Anaheim St., Long Beach, CA. 90804, 562-597-2422, Fax: 562-597-4633

"i"l73:.:. Garden Grove Blvd., Suite 110, Garden Grove, CA928.:;3, 714-539-6000, Fax: 714-539-1694 3110 Caro.in,) Del Rio So., Suite A214, San Diego, CA 92108, 619-230-7007, Fax: 619-280-1647

replacements, utilities, taxes, etc., etc. are all going up in spite of the bad economy!! The cost of painting an apartment under rent control just increased substantially because of new RRP laws that just went into effect! (Bet not one City Council member was even aware of this!)

It boggles my mind how anyone can justify that 1% to 2% of our population, (rental housing providers) should assume responsibility for the financial hardship of it's customers by taking money out of owner's pockets to subsidize them. You are basically suggesting that you approve stealing from the very people who provide the housing for our great city. Why are you demanding even more of our hard-earned assets for which we already had to sacrifice in order to provide housing for others?

NO BENEFITS?

Mr. Alarcon said, "I cannot align myself with allowing people to benefit when tens of thousands are struggling in Los Angeles". (Only the uninformed would exclude housing providers from those struggling.) How about other businesses- no matter what the economy is doing, do you think they will stay in business if there is no benefit to do so? Mr. Alarcon, people go into business to give and receive benefits. No benefits- no business! It's because of benefits that we have housing.

If you don't believe in benefits based on what the economy is doing, you'll run all businesses out of town - then you'll really experience the same problems that housing providers have in balancing the City budget! Are you also going to tell all businesses not to pay City taxes "because they are currently struggling"? Don't they need to pay for the services they are receiving from the City? Come on, Mr. Alarcon, we are all - the City included - having to struggle. Don't vote to put us out of business! Be fair by allowing rent increases that will still be much less than the fair market value even if the City grants only a 7% increase. We're struggling! We need the 7% to stay in business, just as much as the City needs taxes to stay in business.

LA. CONFISCATES 1,600 BUILDINGS!!

If anyone doubts that housing providers are having a hard time, please explain why the City of L.A. has taken over 1,600 apartment buildings from strugglinb housing providers. The City bureaucrats have stolen these buildings by telling tenants that they can pay half the regular rent to the City, not pay the owners, and the City will guarantee that the owner will not be able to evict them. CAN YOU BELIEVE IT?!? Times are really tough and City bureaucrats are making it even tougher on struggling housing providers!!

It's against the law for a tenant to live in an uninhabitable building, but the City collects rents from these unlawful tenants. They red-tagged buildings during the earthquake, but now for the almighty dollar they let tenants stay in the apartments that the tenants themselves have destroyed (tenants were the only ones living there) and the City takes the money. How shameful. It's this same lack of respect for housing providers that causes

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Councilman Alarcon to make a proposal that will drive even more buildings into their REAP program. (I call it RAPE!)

NO RESPECT!

Is there no respect for people who provide housing? It doesn't seem like it when the City Council even considers making housing providers give more and more welfare via a rent freeze. We are human beings just like tenants and other business people. Please show a little respect for what we have been providing for this community!

Please do not vote to make a bad situation even worse for business in the City of Los Angeles.

Vote for a well-deserved 7% increase!

Daniel C. Faller, President

LETTERS AND EXCERPTS FROM PEOPLE WHO STILL BELIEVE IN OUR OLD AMERICAN ECONOMIC SYSTEM OF FREE ENTERPRISE

"Southern California Apartments to See Further Rent Declines Los Angeles- Most of Southern California's apartment markets are facing another year of declining rents as the lackluster job fonnation continues to put pressure on demand for rental housing, according to the most recent Casden Real Estate Economics Forecast, released this week by the University of Southern California Lusk Center for Real Estate. Also, a large shadow supply of single-family homes and condos for lease in SaGa/ will continue pushing rents in a downward direction. The Los Angeles County apartment market is a prime example of lost jobs depressing rents, with over 142,000 positions eliminated by employers in 2009. "Average rents have fallen ... 8.0 percent from their peak in 02 of 2008," notes the Casden Real Estate Economics Forecast, with the largest declines seen in lntown (9.9 percent)." -Quote from BRC Advisors I Mark Groves

Here are some of the arguments against the rent freeze given at the Housing Committee meeting: Expenses have continued to rise I Income has decreased I Any moratorium would cause further cuts to staff as owners are forced to "tighten their belts" I Rents have already declined significantly and many of the rent controlled units are still 20% to 30% or more below market I Owners haven't been able to raiSfJ any rents lately and have worked with tenants to retain them. There are many arguments to be made and these are just some of the ones that we shared. - Bill Hooey

We must demand that the LAHD conduct public hearings on the RSO modifications before they issue their recommendations to the Council just as staff would conduct on a zoning matter or general plan amendment. The system is broken and WE must fix it NOW.

- Scott W. Gray, Director of Operations, Capital Foresight

Dear Council members: I am the president of Top Properties. I currently manage over 1,200 rent controlled apartment units in the San Fernando Valley. I am opposed to the proposed rent increase moratorium.

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The 3% annual increase allowed by the rent stabilization board does not even keep up with the increases in the operating expenses of the apartment buildings .... although landlords are allowed to raise the rents 3% annually. Because rental rates have decreased, most Landlords are only increasing the rents on tenants that are paying below the current depressed market rental rates. For example, if the current market rents on a 10 unit apartment building are at $1,200 and eight tenants are paying $1,250, they will not be increased for several years because Landlords don't want any more vacancies. However if the remaining two tenants are paying $850 due to rent control then it would only be fair to be able to increase them by the allowable 3% which would be $875. I hope that you understand that many Landlords are a/so struggling to provide housing and pay their own bills. If an apartment building goes into foreclosure it is not good for the Landlords or the tenants or the City of Los Angeles. Thank you for your service to our community. --Marty Duran, Top Properties

Dear Council Member: I respectively ask you to vote AGAINST any rent freeze for the following reasons. Landlording, under rent control, is the only business of goods and services in the city not allowed to charge (full) fair-market prices for its products/services. In addition, landlords cannot adjust its prices, as can every other business (subject to supply and demand). This is discrimination against landlording, pure and simple, and greatly harms the landlord. For example, I currently have a tenant who pays $895 for an apartment whose fair market rent is $1 ,550; another tenant rents my back house for $1,850 when the fair market value is $2,700. Why should THEY get a rent freeze? Instead, economic fairness and equal treatment of ?II who live in the city dictate that /should be allowed to charge them a modest 3% increase during the next 12 months. I want to point out that these tenants are not suffering. One of them drives a new BMW; another just took a vacation to Europe. Meanwhile, I am currently going back to vocational school full-time to qualify myself for a second job as I cannot afford to replace my 18 year old car. The city already has rent control provisions in effect that provide tenants benefits ..... For this reason, I again respectively ask that you vote AGAINST a rent freeze. - Sincerely, Paul Grey

As we all know, this is insane, it negates the fundamentals of the market. A/so, it does NOTHING for the tenants who need it most because the only people that this would affect are those who are already paying way below market ... Everyone else won't get an increase because Landlords would have mass defections ... Rents are going down in this market which is precisely WHY this is the STUPIDEST time to do this. This is simply legalized STEALING from 2% of the population ... it's Tyranny of the masses ...

-- Morgan McBain

Dear Tom: As an owner and resident of a 24 unit apartment building in Outpost Estates, I am appalled that the City Council is considering a moratorium on the upcoming 3% rent increase. I have owned many apartments over the past 24 years and this is truly unfair. What is its purpose? The only rents that landlords can raise are those that are already under market (and I 'have only 3 out of 24 that fall in this category). I know of no landlords raising rents as we are all trying to maintain our existing tenant base but that does not mean one should categorically eliminate my raising the rents on those units that are abnormally below market. Why must landlords continually bear the brunt of the city's socialist ideals? If the tenants need assistance, implement a city program and allow them to apply. Allow capitalism U supply and demand to work. It actually does. If the city council tries to place a freeze on rents, then please place a freeze on utility expense, insurance expense and all other operating expenses! Tom, I am a big fan of yours and I ask that you stand for principle and encourage your fellow council members to do the same - Sincerely, Craig W. Davis

Why doesn't someone propose to the city- for the duration of the rent freeze ordinance: 1) A moratorium on any increases in charges for city services including DWP billing 2) A moratorium on city inspections of apartments where they demand repairs (mostly cosmetic) 3) All buildings in REAP get released from it 4) A freeze on all maintenance (the tenants will have to do it themselves)

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5) That the county assessor reassess a// buildings at much lower values so property tax will be greatly reduced (then the city will have less income and they can fire all the building inspectors and close the rent control department)

6) There be a freeze on registration and SCEP fees until the moratorium is lifted. - Peter

Dear Mr. Koretz: Paul, we rely upon you to make good policy decisions for the benefit of our community as a whole. This motion simply targets a minority that is incorrectly perceived to be a bunch of wealthy land barons. Instead, it will exasperate a situation that is already at a breaking point, forcing owners to delay repairs, reduce maintenance services, and result in more foreclosures for owners that are already struggling. We see market rents already dropping, we already have to forgo rental increases, and we are already competing with new owners that have been able to pick up rental properties at reduced prices due to the economic disaster. Property owners should not be prevented from increasing revenues that the market will bear, especially when their expenses have gone up! Our annual increases are already limited. We already have to subsidize tenants with rents over 40% below market, making more money than we are! What doctrine supports the idea that property owners have an extra responsibility to solve economic problems created form the overspending by governments and individuals, by overpaid executives, by unions that force costs in times such as these to remain artificially high? Though I personally do not own any rental property in Los Angeles (rent control drove us out of Los Angeles), I do represent a variety of owners that own 1 to 18 residential rental units. Though the motion you proposed to exclude owners of 5 units or less is admirable, it missed the point and still traps thousands of people, with a likely result that many of them will simply lose their property. How is that fair? Help me, I ' don't understand. Please vote no on this motion and educate your peer group that thisJegislation is simply wrong.

- Sincerely, Laurence R. DeMers, CPA

Alarcon Suffers From Brain Freeze with Proposed Rent Freeze Alarcon is proposing a rent-raise freeze on apartment buildings throughout Los Angeles. He states in a committee meeting that landlords should not impose new costs on their tenants in the middle of a recession. He also said, "I cannot align myself with allowing people to benefit when tens of thousands are struggling in Los Angeles". Let's take it a few steps further. I think Alarcon should also force grocery stores to give all of the unemployed renters free food or at least at a 33% discount; and the gas stations should fill their tanks once a month so they can look for work. And while we're giving away other people's right to free enterprise,.Jet's have the DWP and So Cal Gas decrease all renters' bills by 50% for four months as well. If we're going to destroy free enterprise, why stop with landlords? The only justifiable gift all renters should receive is a personalized "thank-you" card from the City Council members who vote for this unjust proposal- in return for the votes they're buying with it. Yes, I'm a little bitter. - Patricia A. Harris, Valley Village

Dear L.A. Times: If this proposal passes the only folks that will benefit are the "LOWEST under market rent paying tenants in LA", the folks who are already receiving "PAID FOR BY THE PRIVATE SECTOR, PUBLIC SUBSIDIES" ... In other words, no Landlord in LA who wants to keep his or her tenants is raising rents now. Meanwhile most Landlords still have costs that continue to go up, be they DWP increases or insurance or maintenance costs. This is nothing more than a political payback to Council members' constituencies; this proposal does nothing for the majority of L.A.'s rent paying public. It's clear that CORRUPTION is alive and well in Los Angeles. /, for one, am selling all my LA rental properties as fast as humanly possible before the City of LA gives them completely away to my tenants.

-- Morgan McBain, Venice, CA

Dear Councilperson: I'm a retired man with a family who owns some apartment buildings under rent control. Many of my tenants whom have Jived there many years are paying rents that are way under market value (up to $1,000 under market). My retirement pay is fixed yet my expenses for these apartments are

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increasing. With the 3% raise this year I will still be losing a lot of income from my properties. I worked for over fifty years for these properties and now I am at a loss as how my rentals are costing me money so they (my renters) can live at Venice Beach and in Marina Del Rey To consider a freeze of a very small increase of 3% to an already under market rent is unbearable. If you want to penalize those of us who worked so hard for so long for the American dream of retirement without relying on Social Security .... shame on you and vour retirement dreams!

--A baby boomer American Citizen - Bobby Bishop

Dear AOA: It is amazing to me that building owners have to subsidize low to moderate income tenants as mandated by City codes and the Court. I am amazed why the City does not mandate gas stations, supermarkets, and insurance companies to a/so subsidize the unfortunate. Why do the courts rule in favor of the City(ies), that it is the building owners responsibility to pay for City's (like LA) social welfare agenda and responsibility? If we are required to subsidize the low inc0me tenants on behalf of City's mandate to accomplish City's goal to serve the poor, aren't we becoming City's contractor to deliver low to moderate income units at our costs? In legal terms, we have delivered our "consideration" as forced upon us by the City, what do we get in return (OFFER) for being the low to moderate income housing contractors??? We should get to have all our LAHD costs waived! The City should pay for its low income program and all the costs pertaining to such. After all we are City's contractor by default and mandate, involuntarily. Do we get City's low income loans to subsidize/rep/ace our market rate loans? Do we get City's blanket coverage insurance and pre-1978 DWP rates to service our pre-1978 buildings? Do we get the City to subsidize all repair bills to meet code enforcement? · If we are only allowed to collect 60% of market rents, why do we have to pay 100% of all market COSTS as a result of the City's self-mandated program? In return, City should offer "consideration" to its housing contractors by:

1) participating in paying f0r costs, like LAHD fees and all City Code required repairs and maintenance costs. (It is a back breaking levy and burden upon the buildings anemic budget.)

2) paying contractors for services rendered, like rent subsidized multiplied by a gross multiplier of market valuation. Essentially landlords loss is the subsidized rent (market rent- reduced rent= subsidized rent) multiplied by GRM (gross rent multiplier used by appraisers to value properties).

3) reducing property taxes by the amount of subsidized rent's effect on valuation. So if your property is getting 70% of market rent, your property should be reduced in valuation by 30% as well- in essence the assessment value should be reduced by 30% as well.

Thanks for working for the poor and unfortunate landlord like me. -- Sincerely, Edward Chia (24 unit building in downtown LA)

Dear Council Member: I understand the Council will vote on a proposed moratorium of the 3% rent increase for RSO-subject housing which was approved and announced by the City Department of Housing. I ume vou to vote against this moratorium. I own an 8-unit rent-controlled building built in 1933. I charge be/ow-market rents. The building requires substantial investment to maintain it in top condition. I recently made expensive improvements to modernize and make my tenants proud of whJre they live. I contract with many craft and service people who I will not be able to afford if you freeze rent increases. These working people should be considered in your decision. They are vour constituents. too! If there is a rent freeze, I will not cover expenses in 2010. Consequently, I will contribute less sales tax and income tax revenue. Please consider what property owners coatribute to Los Angeles in terms of jobs and tax receipts and VOTE NO. Thank you for your consideration. --Respectfully, Eugena B. Blythe

There are only three possible reasons to approve a moratorium on rent increases: 1) Voting yes will get you votes, because there are more renters than owners. 2) You or you family will personally benefit from lower rents. 3) You have absolutely no understanding of basic economics and actually think controlling rents will help

people.

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I have several apanment buildings in the City of Los Angeles. I have lowered rents in several units because similar apanments are available in the area at lower rental rates. I also have units that are already way below market rates, and it is fair to increase these rates. Landlords do not have the power to set rents at whatever level they want. Landlords compete with each other every day and rents adjust based on that competition. The City does simply not have the moral, ethical or economic right to take something from one private pany and give it to another. Please do not be swayed by all the special interests who will show up at the meeting tomorrow. Make the right choice - vote for freedom and free enterprise. That is what made our country great.

- Don Griffin, BA and MBA, UCLA

Dear Mr. Faller; Thanks for standing up and organizing landlords for this cause. In my opinion it is much deeper than simply freezing rent increases for a while. It is about the general direction our country (and panicu/arly our state) is going: on the one hand becoming socialists, in spite of the clear and predictable outcome and the damage it will end up doing mostly to the poor and underdogs in the long run, but politically "beneficial" or "correct" in the shan run for the elected politicians, and on the other hand, using "democracy" to enable the majority to "gang-bang" rape financially the minority that plays by the rules. Regretfully the couns lack the willpower to do what the constitution is a// about, because they view taking such a stand as politically incorrect, so its left to us to do what we can for ourselves and the ultimate good of our country.

--Jacob Blaich

Dear Councilmember Garcetti: I urge you to VOTE NO on the RENT FREEZE proposal. I read your "FORM LETTER" .... I agree, these are hard times.... But, the notion that you shift the burden of private individuals' (tenants) hardships to Private Landlords is STEALING. If you, as a City Council member really' believe in this, either you should help pay for this burden PERSONALLY out of your own PERSONAL FUNDS (which is what you are implying that private landlords should do) or you figure out a way for the City to pay. - Thank you, Morgan McBain, Venice, CA

Dan, You might advise the LA City Council that this proposed rent freeze is a form of Communism and that the US was so against it that we (the US) lost thousands of young men in VietNam fighting against it. Now Communism /s being proposed by our local City Government; that is not right! When a tenant goes to the market to buy groceries does the City Government control the price of these essentials, I don't think so. Then why is the City Council trying to single out rental propeny owners to subsidize the income of all tenants? If a panicular tenant has financial difficulties like so many of us have now, the City, County, State and Federal Government have programs in place already to deal with these problems on a case by case basis. Again, why are income property owners being discriminated against to suppon all tenants? It is crazy; it does not make sense! Question, if this rent freeze goes into effect, will the c11y also agree to freeze an income property owner's property tax annual increase for the same period of time as the rent freeze is in effect? - George Vanek

Dear Councilman Reyes: We wanted to take a moment to express our concern for a possible suspension of the annual rent increase (3% this year) in Los Angeles. As property owners and residents in Los Angeles, we are concerned that this propo~al puts an unfair burden on both property owners and new renters under rent control. As expenses go up to provide housing, it makes it difficult to provide nice, clean, safe and affordable apanments. The very folks providing nice, affordable housing are a/so often the ones burdened the most. Landlords incur many cost increases throughout the year, some of which come from government agencies including extreme increases in garbage collection fees, water fees and electricity fees. These combined with the cutbacks of city services such as lot cleanup and graffiti removal have already forced propeny owners to take up the slack, clean our neighbors and paint over graffiti even if that action puts us or our residents at risk. This proposed suspension of the annual rent increase will hun significantly. Thank you for your time and consideration. Our goal is a cleaner and happier city that is safe and comfonable for all its residents. - The Gleiberman Family (owners of 5 properties in LA -

90057 & 90006)

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Please do not vote to make a bad situation even worse for

business in the City of Los Angeles. Vote for a well-deserved 7°/o

increase!

'

Submitted in -t\CW Committee q / Z q /1 0 Council File No: rtH)012) /D--Dtz/3-S/ Item No.:_..J.I_..,,---:::::::----::--

(1 .{'_ ._ ·"'72 I f! .~:A'fWX\ wm-J1:':!9l ,c:.. Los Angeles Housing Department -Rent Stabilization Ordinance Revisions

DearAOA: Below is a letter I mailed to Councilpersons Jan Perry and Ed Reyes regarding revisions of the Rent Stabilization Ordinance for the City of Los Angeles.

Dear Friends: Over the last several months, representatives from the L.A. Housing Department have repeatedly suggested in Committee and in front of the full L.A. City Council that no other city or jurisdiction provides for some form of minimum annual rent increase pass­through! That statement is false, known to be false when articulated and designed to mislead or otherwise deceive others. TRUTH: Research has revealed that San Jose (8%), Los Gatos (5%), Hayward (5%), Santa Monica, (approximately 4%) and Beverly Hills (10%) all maintain a legal rental annual FLOOR. Concurrently, you may wish to also challenge and dispute the other ''myth" offered by others that 61% of the eligible voters are renters?? Additionally, tenant advocates then also misstate that there is only a 2% vacancy factor based upon DWP records. Sooner, rather than later, the LAHD will return their alleged modifications and proposed revisions to the RSO. Be careful. This is the same group that delayed evaluating the economic round table report for 18 months. Now, this country has suffered an 11nforeseen economic collapse causing unemployment figures in Southern California to be 14%, enormous vacancies in retail, commercial and industrial properties, as well as in some districts, vacancies far in excess of 15% or higher. Some small owners have their units on the market for five months and are only able to achieve a rental by reducing thee rent by 40% and sometimes offering a free month's rent or two. It's difficult.

Sooner, rather than later, the LAHD will return their alleged modifications and proposed revisions to the RSO. Be careful. This is the same group that delayed evaluating the economic round table report r(Jr !8 months.

Most recently, the Federal Government adopted new regulations for removing lead paint that requires every handyman, electrician, plumber or painter have special certifications if in fact any portion of a property is compromised by a repair or restoration as it might disturb the alleged lead paint component. It's a dangerous environment for owners. My plumber tells me that new environmentally appropriate water heaters currently being offered malfunction and are of poor quality. Thousands of owners are renting trucks and driving to Nevada and Arizona to buy the old water heaters and bring them back to California to be warehoused and stored. We're all aware that in the last 70 months, our friends at DWP have increased water usage by 19%, sewage by 24% and electrical by 12%. Our friend, the mayor, has asked that trash removal be increased by I 0% to underwrite more police officers.

Let's be clear. These pre-1978 units cannot compete. They're old, they need a great deal of repairs and they could never obtain any cooperation from the Housing Department because a capital improvement petition takes years to be processed and then the costs are amortized over five years AND under no circumstance may a tenant pay more than $10 per month. Simply stated, it is a losing proposition. Our good friends Larry Gross and others always seem to have four or five very strange, untruthful and unsupported "bullet points". First, they tell you the vacancy factor is only 2%, relying upon DWP figures. That's false because owners automatically transfer the service into their name when a unit is vacant to accommodate repairs and allow it to be shown at night. Next, they tell you that 61% of the L.A. city population are renters. That may be true but 90% of that percentage probably are living in either exempt, newly constructed units, (built after 1978) or they're paying market rent and to the extent they're not at all agitated or upset over this issue. 2% to 3% are in the older units and possibly have a financial hardship for which the Federal government allocated $30,000,000 several months ago for tenant rental vouchers. If you don't have sufficient money to pay your rent, you to the L.A. Legal Clinic or some other group, apply and you get the money. My good friend, Larry Gross and his friends at the Housing Department falsely tell you that only Los Angeles has a "safety net" provision of 3% regardless the CPI analysis. We'll, it's false. Look at Los Gatos, San Jose, Santa Monica, Hayward and Beverly Hills. They all have a minimum/maximum built-in automatic yearly rent guarantee feature - no exceptions .

.. . if95% of the RSO units are indeed master metered (owner pays all water, sewage, trash and electrical f(lr

laundTy <md common areas), and those ligures are running in excess of 20% higher per year- how can a 3% per year annual increase be sufficient?

Now, who pays the utilities? Even Council person Alarcon agreed that only 2% or 3% of the rental units under the RSO involve a situation where the owner pays all the utilities. Then, of course, you only get a 2% increase per year, which, he suggested, the rent freeze would cover as well. Be careful. You already exempted mobile homes. At some point, there will be a lawsuit alleging the failure to extend equal protection between housing providers as you made a preferential special arrangement for mobile homes. Be careful. Now, if95% of the RSO units are indeed master metered (owner pays all water, sewage, trash and electrical for laundry and common areas), and those figures are running in excess of 20% higher per year- how can a 3% per year annual increase be sufficient? Our economic studies suggest that the better approach is to allow an automatic 7%. Hayward, San Jose and Los Gatos have a 5% to 8% automatic feature and of course, Beverly Hills has a 10% feature. The Santa Monica rent control formula is approximately 4%. There are tens of thousands of small owners who provide incredibly effective, affordable housing. Why put them out of business? Remember, CPI does not cover property taxes, registration fees, insurance, accounting and attorneys' fees. It does not cover utilities, roofing, landscaping, plumbing, electrical and/or repair and restorations. Yes, CPI is a

terrific component if you're looking at caslunere sweaters, Rolex watches, iphones, laptop computers or Gucci handbags. When you install new linoleum, carpet, repaint and advertise, none of these items is found or tracked on the CPI. Drive through your districts. Get up early on a Sunday morning. You have huge vacancies and they are impregnated with "For Rent" signs. Let's have a meeting. Not a meeting to fight or argue- an educational meeting to exchange real ideas. Honestly, I wouldn't mind if a well educated, knowledgeable or well trained tenant advocate came. I have nothing to hide. I'm a small owner. I help my family and my wife's family run and manage some small buildings. Yes, have a day job. I am an attorney and I typically handle cases where people allege they're injured as a result of the negligence of others. I fight and challenge insurance companies. I'm a trial lawyer. But ... .I'd like to help you. Some ideas I think are fair to consider for the RSO revision are as follows:

• Abolish the CPI formula • 100% pass-through registration fee • 100% pass-through utilities • Annual rental increase in January of each year • Safety net/floor 5% - upper cap 10% • Five units or Jess per address should be exempt from RSO • All hardship tenants may apply for exclusion of the annual increase, however, the

increase will be banked for the following year • Building inspections every four years with a 75 day prior notification • Capital improvement petition to be processed within 60 days and all approved

costs to be fully amortized over one year and assessed to the tenants for the next 12 months

• Complete abolition of the REAP program • Increase the designated roommate fee to 15% • Create a permanent oversight board to include tenants, owners, trade/service

technicians and a Housing Department Deputy Director • 18 month amnesty for bootlegged/non-conforming units

Thank you again. Very truly yours, Michael Millman

September 28, 2010

Victor N. Viereck Certified Public Accountant

12702 Tiara Street Valley Village, California 91607

(818) 985-9174 vicviereck@sbcglobal.net

FAILS TO PRESERVE

The claimed RSO "purpose of the recommendations is to safeguard tenants from excessive rent increases while providing landlords with a just and reasonable return." But since the regulations result in accelerating the rate of deterioration and destruction of affordable apartments, the new recommendations fail to meet the purpose. Apartment owners need to feel confident that their investments will be profitable. It's not only current owners who need that confidence. In order to motivate other investors to buy apartments (in Los Angeles), they need that confidence. Tenants are tenants because they either choose to be, or they do not have the capital to buy a home. The taxpayers do not have the capital to subsidize the tenants. Tenants need investors to own apartments, but investors do not need to be apartment owners. Only investors have the means to provide rental housing.

Although the rarely used Primary Renovation Program would be improved by shortening the cost amortization to ten years, it still fails to adequately recognize what would make it an effective improvement program. Major costs, such as interest and relocation fees are not included in the allowed reimbursment costs. Even with reducing the waiting period for commencement of improvements from 60 days to 30 days, the process is too much of an obstacle course to travel when it takes 10 years to recover only part of the real costs.

By limiting systematic improvements to Primary Renovation (instead of allowing them to be Capital Improvements), less systematic improvements may be sought. The non­reimbursable costs of the Tenant Habitability Program are oppressive enough without adding on a submission administrative fee of $227 and a monitoring fee of $61.

Although increasing the Capital Improvement recovery percent from 60% to 75% is helpful by the end of the 10-year amortization period, owners who make capital improvements would receive 25% less each month for the first 6 years. That still represents a LOSS of 25% of only allowed costs by the end of the 10 years. In other words, the owner's loss would exceed 25% of the capital improvement investment. When vacancy rates are high, with the risk of lower rents in order to compete, there frequently is no room for any kind of rent increase on more recent tenants.

From my experience with Capital Improvement applications, the excessive time the Housing Department takes, especially in excess of the time indicated in the ordinance, to process the applications is much more than a penalty. The department also errs in the process. But there is no compensation provided to the applicant for all the lost reimbursement during the department's wasted time, including appeals time. Yet the LARD wants to charge an "administrative fee" for a hearing on their faulty processing.

The recommendations regarding the Just and Reasonable Rent Adjustments were too vague to even know the department's sincerity in that regard. An heir could have inherited an apartment building free and clear of any debt. But the rents could be a lot lower than a similar building with only 25% equity. Due to no loan, the former building would have better net cash flow than the fully encumbered building. It would be interesting to know which would be allowed a Just and Reasonable rent adjustment.

Being required to register each and every rent "stabilized" apartment would be an unnecessary, gargantuan task that should be rejected. But that should not be used as an excuse for allowing affluent tenants to be subsidized by owners, particularly those of lesser means than the tenant's. The claim of possible discrimination based on means is considerably overstated. When an owner has a vacancy, time is money. Leaving an apartment vacant for a longer period of time, waiting for the higher income tenant, can cost much more than the imagined difference in monthly rent. It's better to get the apartment rented than waiting for "pie in the sey." When rents of existing tenants are reduced to keep them as tenants, it frequently takes two, three, or more years just to get rents back up to the previous rate, but not keep up with cost increases.

The proposed change in CPI range to 2% to 9% from the current 3% to 8% is misleading. In the 31 years since the RSO was instituted, the CPI exceeded 8% only twice, but went below 3% eight times. Whether the so called floor rate is 2% or 3%, it has no effect on more recent tenants, who moved in at market rates. But tenants who are long term tenants normally pay rents well below market rates. For owners, the rates indicated herein are ceilings, not floors. With vacancies, or the risk of vacancies, rents on more recent tenants have been reduced, not increased. To try to cover cost increases (DWP, insurance, property tax) many owners have to depend on increasing rents on those that are extremely low.

Sincerely,

Victor N. Viereck

After decades of activism on behalf of the community, I am speaking to you on behalf of an issue which personally affects our family. As small property owners, we are asking you to consider the very real problems experienced by owners of older multi­family properties, usually mom-and-pop enterprises: • Increases in utilities, insurance, maintenance costs have been substantial. • Our experience with vacancies in the past 18 months has been that we invest

considerable sums in each vacated unit and then must price the unit 15 - 20% less than the previous rent amount because of changes in supply and demand.

• Except for a few extremely low rents, we have not raised any rents for at least two years, because we value keeping our good tenants in this difficult economy.

• There are several elements critical to personal survival: housing, food, health care, education. Yet only providers of housing have been targeted for these onerous restrictions. We have not required markets to give away a percentage of their food, nor health care providers to treat a number of their patients without charge. Society's basic obligations to its population should be spread across society at large, not narrowly on the "mom and pop" sector of housing providers.

• We can all agree that more low-income affordable housing should be available. That should be a goal of our entire society, not the small property owners in an already struggling economy.

• There are tenants struggling for basic survival, and others who are able to afford rent increases. Nothing in this proposal targets the needy tenants. It would seem that targeted needs-based vouchers might be a more effective strategy.

• We have not been feeding at the public trough via subsidies and tax forgiveness as have many large developers and entities who will be exempt from these restrictions.

Most of us work seven days a week at this job of keeping the lights on and the plumbing operational, and are simply asking that the rate of return in this sector not be unfairly constrained.

Bennett and Marilyn Cohon

Date: q /z_q /! 0 '

S b 'tt d · f),rr-·-~-' u mJ e In - ll-':;-;'''U Committee

Council File No 10- D& /? . /0-0& l:::rS { Item No.: I J

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